Bone morphogenetic proteins (BMP) induce the differentiation of cells of the osteoblastic lineage and enhance the function of the osteoblast. Growth factor activity is regulated by binding proteins, and we previously showed that BMPs induce noggin, a glycoprotein that binds and blocks BMP action. Recently, additional BMP antagonists, such as gremlin, have been described, but there is no information about their expression or function in osteoblasts. We tested for the expression of gremlin and studied its induction by BMPs in cultures of osteoblast-enriched cells from 22-day-old fetal rat calvariae (Ob cells). BMP-2 caused a time- and dose-dependent increase in gremlin messenger RNA and polypeptide levels, as determined by Northern and Western blot analyses. The effects of BMP-2 on gremlin transcripts were independent of new protein synthesis. BMP-2 increased the rate of gremlin transcription as determined by nuclear run-on assays. Fibroblast growth factor-2 and platelet-derived growth factor BB also induced gremlin, but other hormones and growth factors had no effect. Gremlin prevented the stimulatory effects of BMP-2 on DNA, collagen, noncollagen protein synthesis, and alkaline phosphatase activity in Ob cells. In conclusion, BMPs induce gremlin transcription in Ob cells, a mechanism that probably limits BMP action in osteoblasts.